Paul L. Caron

Sunday, March 17, 2019

7th Circuit: § 107 Housing Allowance For 'Ministers Of The Gospel' Does Not Violate The Establishment Clause

Gaylor v. Mnuchin, No 16-cv-215 (7th Cir. Mar. 15, 2019):

Since the Founders crafted the Religion Clauses of the First Amendment, courts have grappled with the “play in the joints” between them. Walz v. Tax Comm. of City of N.Y., 397 U.S. 664, 669 (1970). This case calls us to do so once more. Freedom From Religion Foundation (“FFRF”) claims that a longstanding tax code exemption for religious housing, 26 U.S.C. § 107(2) of the Internal Revenue Code, violates the Establishment Clause. The district court agreed. The U.S. Treasury Department and several intervening religious organizations ask us to reinstate the exemption, asserting that the survival of many congregations hangs in the balance. We must decide whether excluding housing allowances from ministers’ taxable income is a law “respecting an establishment of religion” in violation of the First Amendment. ...

We conclude § 107(2) has a secular legislative purpose, its principal effect is neither to endorse nor to inhibit religion, and it does not cause excessive government entanglement. Here, “[t]here is no genuine nexus between tax exemption and establishment of religion.” Walz, 397 U.S. at 675. Section 107(2), then, does not violate the Establishment Clause under the Lemon test. ... [W]e conclude § 107(2) does not violate the Establishment Clause under the historical significance test.

FFRF claims § 107(2) renders unto God that which is Caesar’s. But this tax provision falls into the play between the joints of the Free Exercise Clause and the Establishment Clause: neither commanded by the former, nor proscribed by the latter. We conclude § 107(2) is constitutional. The judgment of the district court is REVERSED.

(Hat Tip: Steven Sholk.) Prior TaxProf Blog coverage:

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Better luck next time, lower court judge. Maybe third time is the charm.

Posted by: Anon | Mar 17, 2019 1:05:32 PM

From the 7th Circuit's opinion: "Before 1913, Congress could not constitutionally tax housing provided to ministers as part of their income. See Pollock v. Farmers’ Loan & Trust Co., 158 U.S. 601, 637 (1895) (invalidating a state income tax)."

Wrong, wrong. There was no constitutional problem in taxing compensation for services before 1913, because the Pollock case invalidated only taxes on investment income, not those on compensation (such taxes had been upheld in the 1881 Springer case). Moreover, Pollock involved the federal income tax, not a state one. Very sloppy research by the judges and their clerks.

Posted by: guy helvering | Mar 18, 2019 6:41:33 AM